The dangers of folk economists

Discussion in 'Markets & Economies' started by mmm....shiney!, May 5, 2016.

  1. radiobirdman

    radiobirdman Active Member Silver Stacker

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    Classic, it would be very quite on this thread if that was the case
     
  2. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Before you listen or read the next news report about Australia's balance of trade deficit, read this and be prepared:

    More here: https://fee.org/articles/trade-deficits-dont-matter-understanding-deficits-do/
     
  3. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Economics is the core of human existence, it "concerns everything and everybody":

    cited in https://medium.com/evolutionary-liberalism/dear-fellow-libertarians-its-all-about-economics-bd3399c9dc85
     
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  4. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Debunking economic fallacies, taken from Henry Hazlitt's Economics in One Lesson

    http://www.intellectualtakeout.org/article/3-economic-fallacies-just-wont-die
     
  5. JulieW

    JulieW Well-Known Member Silver Stacker

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    Penalty rate cut fails to stimulate jobs, survey shows

    Cutting penalty rates across the country has failed to create any extra jobs or give workers more hours, new research has found.

    In a blow to the Turnbull government's backing of the Fair Work Commission's decision to reduce penalty rates, a survey of 1351 workers by the University of Wollongong and Macquarie University found there has been no short-term increase in average weekly hours worked by employees.

    https://www.smh.com.au/politics/fed...mulate-jobs-survey-shows-20171214-h04csj.html
     
  6. Stoic Phoenix

    Stoic Phoenix Well-Known Member Silver Stacker

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    ^ of course it created extra jobs, the survey didn't produce itself. :confused:

    Seriously though no one surely expected more jobs or hours to be created by removing penalties?
    It does however mean the entrepreneurs who invest in having their own business keep more of their money. This is a good thing.
     
  7. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I haven’t seen the FWC submissions so I’m not going to comment on the Business Council’s rationale regarding penalty rates. But...

    Fallacy number 4: the goal of production is employment.

    The goal of production is consumption ie to produce goods that are desired as cheaply and readily as possible whilst maximising resource utilisation. Jobs are a by-product if you like of the production process, they are an input, just like capital, land and resources. If the cost of production is lowered, consumers benefit by paying less for goods, the saving is then put toward satisfying other needs which enhances demand for other goods and demand for other jobs.

    As the researchers suggested, it’s likely that job losses were a result of employees, mostly those under 35 leaving the industry (or voluntarily reducing their hours) and looking for work in other sectors that have better remuneration benefits. Which is actually the whole of idea of the free-market and no price (wages) controls in the first place. Work where the demand is and the pay reflects the value created.*

    *Edit to add: getting paid more than $40/hour as a 20 year old simply for carrying plates of food around on a public holiday is a poor use of resources.
     
  8. JulieW

    JulieW Well-Known Member Silver Stacker

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    For the past four years workers across Australia have for the first time outside of a recession seen their living standards stagnate. Where once it was taken for granted that you would be better off now than you were in the past, the average Australian household has less disposable income in real terms than when the Liberal/National Coalition took power in 2013. And the major reason is persistent low wages growth.

    In a period where the cost of living for essential items such as energy and health have skyrocketed, workers’ wages have grown at record low levels that would have been considered implausible five years ago. For workers – especially those on low incomes such as Margaret Peacock at the Australian Paper factory in Preston – even the average growth figures seem implausibly high as they struggle in an industrial relations environment where negotiating a pay rise large enough to cover increases in cost of living is viewed as a luxury.

    ....

    But underemployment does not explain all of the change in wages. By the time underemployment split from unemployment at the end of 2014, the link between wages growth and unemployment had been fractured for nearly two years.

    What the split did do, however, was send wages growth downwards even while unemployment itself improved.

    Profits are up, but wages are down
    For many workers – including those like Margaret – the most exasperating thing about the lack of a wage rise is that the companies seem to be doing well.

    Last year the sense that workers were losing out while companies profited reached a peak when company profits grew by 22% – the second fastest annual growth in the past 30 years, while total wages and salaries grew by just 1.4% – the slowest growth outside of a recession or the GFC.

    Wages and salaries make up around 42% of Australia’s GDP, so when nominal GDP growth rises or falls, generally wages and salaries follow suit. But last year, yet again one of the wonderful long-held relationships in economic theory decided it was time for a trial separation:

    and more at:
    https://www.theguardian.com/australia-news/2018/mar/01/whatever-happened-to-wage-rises-in-australia
     
  9. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    ^^ Despite the increases in the real cost of wages over the last decade, businesses were able to absorb these costs thanks mainly in part to the mining boom which benefitted miners AND thousands of other business that serviced mining companies and their employees. In other words, from a consumer perspective real wages rose yet from a producer's perspective they remained about the same. Hence producers were able to afford to accommodate the increases in real wage due to increases in profits. So the real cost of consumer goods declined and prosperity was enhanced.

    This situation has now reversed. Since about 2012, from a producer's perspective the real cost of wages has been steadily increasing, correspondingly from a consumer's perspective real wages have declined. In response to this increase in real wage costs and a decline in consumer demand, companies reduce their workforce and/or the labour hours required. Hence real wage growth stagnates.

    So the moral of the story is that Australian workers have been lucky. For much of the past 2 decades our resources have been in demand by other nations, the world's 2 most populous countries have industrialised and introduced market reforms AND easy credit has been available meaning if you don't earn enough to buy a 65 inch flat screen you just borrow the money anyway. These factors have uniquely combined to help us forget how hard life can be sometimes. Especially when you view the world through the eyes of a folk economist.

    As a side note, the Phillips Curve mentioned in the article of The Guardian is another example of folk economics. No surprise that The Guardian should rely on economic fallacies to make its point. And secondly, The Guardian cites a 22% increase in company profits for FY2016 ... without an explanation of whether that profit is pre-tax profit or not, which is pretty good seeing as they'd been stagnant for 8 years, despite increases in real wages. :eek: . Which makes a significant difference, in case you didn't know. Especially when you're selling newspapers. :p

    http://www.rba.gov.au/publications/bulletin/2015/jun/pdf/bu-0615-2.pdf

    https://mises.org/library/phillips-curve

    https://mises.org/library/ten-great-economic-myths
     
  10. bordsilver

    bordsilver Well-Known Member Silver Stacker

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    Unlike most workers wages company profits fall and rise quite sharply. And, due to the beauty of denominators, a fall of 20% followed by a rise of 25% means that profits are simply back to where they originally were.
     
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  11. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Economic fallacy No. 5: Worker’s have a rightful claim to a portion of the profits of an entrepreneur

    Ummm, no they don’t. Workers are paid wages/salaries before profits are made. Profits are the entrepreneur's reward for forgoing current consumption in favour of greater, future possible consumption.

    As Shaddam IV put it so well:

    https://www.silverstackers.com/forums/index.php?threads/what-is-an-entrepreneur.88111/#post-1047300

     
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  12. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Economic fallacy No 6: The balance of trade

     
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  13. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Economic fallacy No 7: The oldest fallacy in economics, trade deficits

    https://fee.org/articles/the-oldest-fallacy-in-economics/

    *Insert the POTUS and some of his advisors.
     
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  14. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    The Melbourne Cup was an opportunity to briefly analyse the Trade Deficit Fallacy.

    The winner, in this case a foreigner gets to take $4 million Australian out of the country as he "sold" a good here ie competed against others in a market. But he didn't purchase an equivalent (or higher priced) good from us. According to the disciples of The Church of The Trade Deficit Fallacy our economy should be $4 million worse off because we have given the owner of Cross Counter, Sheikh Mohammed bin Rashid Al Maktoum a swag of money without an equivalent trade deal in the form of an exchange in goods in return.

    Naturally the disciples of The Church of The Trade Deficit Fallacy ignore the added value the Sheikh brings to the market in the form of employment and entertainment for both locals and those overseas and that $4 million for that added value obviously meets with the consent of most consumers of horse racing, for the return we get (value) must be greater otherwise the race would not stop a nation.
     
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  15. Ipv6Ready

    Ipv6Ready Well-Known Member Silver Stacker

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    Even discounting "social values" surely Sheikh Mohammed bin Rashid Al Maktoum, his entourage plus all the other foreign horse syndicates, fees for races, renting stables and hotel for staff, travel (taxi etc) and other activity like eating at restaurants add up to off set the $4 million
     
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  16. JulieW

    JulieW Well-Known Member Silver Stacker

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    My dollar in the sweep looks small.
     
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  17. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    @Ipv6Ready , it’s the value of unseen benefits that are the real measure of how trade enhanced our lives.

    You place greater value being in the sweep than keeping your $1. ;)
     
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  18. JulieW

    JulieW Well-Known Member Silver Stacker

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    It's unrelated to the racing economy. It's like a tax for compulsory camaraderie. There's always someone who takes up a "voluntary" collection with these sort of things, ignoring the glares of the misanthropes and animal lovers as they issue the challenge!
     
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  19. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    @JulieW so you value being in the sweep more than you value keeping your $1.
     
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  20. JulieW

    JulieW Well-Known Member Silver Stacker

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    A dollar to skip the curmudgeon label is cheap. It's what the group dynamics require.
     
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